In this third installment in our Mythbusters series (with credit to the Discovery Channel show, MythBusters), we turn to the oft-repeated but seldom-scrutinized notion that reporting values in financial statements creates volatility.This idea has been in the spotlight because of the recent financial crisis, with one myth-monger after another blaming the Financial Accounting Standards Board and anyone but themselves for financial institutions’ crashing stock prices. They say that mark-to-market accounting made it look like these entities were going into the tank. How much better it would be, they said, if the collateralized debt obligations were just carried at their cost so things wouldn’t look so bad. And if they didn’t look so bad, we’d all be better off.

Balderdash.

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